The Tax Chick Podcast Musings of a Tax Chick... Trusts 101
Mar 26, 2024
Explore the fascinating world of trusts! Learn what a trust is and the crucial three certainties needed to establish one. Discover why families create trusts and the importance of reevaluating them over time. Understand the roles of settlors, trustees, and beneficiaries, alongside the differences between capital and income beneficiaries. Dive into how trusts serve in business succession planning and protect minors or dependents. Lastly, uncover how trusts are taxed under new reporting rules, including the unique treatment of inter vivos and testamentary trusts.
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Trusts Are Governed By Two Systems
- Trust law is provincial in Canada so rules vary by province and matter for trust setup and powers.
- The Income Tax Act also defines and taxes trusts differently than provincial law, so both bodies apply.
The Three Certainties Matter
- A valid trust needs the three certainties: intention, subject, and object to exist at law.
- Missing any one certainty risks that the arrangement will not be recognized as a trust.
Forgetting Why A Family Trust Exists
- Amanda describes clients who created discretionary family trusts years ago and later forget why they exist.
- She uses these examples to warn listeners to review trust purpose before deciding to terminate them.